· Energy prices are responding to evidence of economic recovery. Last week the pump price for regular gasoline rose to $2.75 per gallon, the highest level since October 2008 and up 71% from the December 2008 low of $1.61. Yesterday, strength in gasoline prices eased somewhat. The spot market price for a gallon of regular gasoline held at $2.12 per gallon, the same as last week's level. The figures are reported by the U.S. Department of Energy and can be found in Haver's WEEKLY & DAILY databases.

· Earlier gains in the price for a barrel of light sweet crude (WTI) oil also stabilized. Yesterday, the spot price of $82.52 was roughly unchanged from the prior week. Nevertheless, prices have risen from $71.53 averaged in early-December. Moreover, prices were up sharply from the December 2008 low of $32.37.

· Demand for gasoline last week posted a 0.9% decline versus one year ago. That decline compared to a 3.9% increase at the beginning of October. Breaking away from earlier y/y strength, the demand for residual fuel oil fell a sharp 50.4% y/y while distillate demand fell 10.9% y/y, a decline more moderate than the 21.6% y/y shortfall at the beginning of last July. Inventories of crude oil and petroleum products fell in early-January by 6.2% from the July high and were up a diminished 3.1% from one year ago.

· Reflecting the cold temperatures throughout the U.S. natural gas prices also strengthened significantly. Last week prices averaged $6.50 per mmbtu (11.1% y/y), up from $3.35 in November and triple the September low. Nevertheless, prices remained down by half from the high reached in early-July of 2008 of $13.19/mmbtu.

· The energy price data can be found in Haver's WEEKLY database while the daily figures are in DAILY. The gasoline demand figures are in OILWKLY.

· The Case for "Inflation First" Monetary Policy from the Federal Reserve Bank of St. Louis is available here